Scaife Paid $1.7 Million In Spectator ‘Legal Fees’

More than $1.7 million in funding provided by Pittsburgh billionaire Richard Mellon Scaife for The American Spectator ‘s “Arkansas Project” was reported to the Internal Revenue Service as having been spent on “legal” fees for a Virginia lawyer-even though the conservative magazine’s internal financial statements suggest strongly that its actual legal bills never approached those amounts.

The secretive Arkansas Project targeted President Bill Clinton, his wife Hillary Rodham Clinton and their political associates. From its beginning in mid-1993, the project was managed by Stephen S. Boynton, an attorney based in Virginia who has acknowledged meeting on several occasions with David Hale, the key witness against Mr. Clinton in the Whitewater case.

Mr. Boynton has refused to discuss his work for the Spectator , but by last October his role had become so controversial within the magazine that the publisher, Ronald Burr, requested an audit of the funds paid to him. Instead, Mr. Burr was abruptly ousted and paid a settlement on the condition that he remain silent about the matter.

Tax returns obtained by The Observer show that the Spectator -which is owned by a tax-exempt organization known as the American Spectator Educational Foundation Inc.-received $2.43 million from Scaife-controlled foundations between 1993 and 1996. During that same period, the Spectator reported payments to Mr. Boynton of more than $1.7 million and listed those payments on its tax returns as legal fees.

Yet financial statements prepared during that period for the Spectator foundation’s board of directors, which were also obtained by The Observer , show “professional fees,” including legal costs, of less than $500,000.

Although Mr. Boynton himself and Spectator editor R. Emmett Tyrrell Jr. have insisted that the lawyer did, in fact, provide legal services to the magazine, his specialty is not libel or publishing but conservation law. (At one time, he was retained as a lobbyist by the Government of Iceland in an effort to overturn laws against whaling.) Moreover, other sources at the Spectator have said they know of no legal advice provided by Mr. Boynton, and that the magazine relied upon other attorneys when it required counsel on libel and other problems.

Those same sources have told The Observer that they believed Mr. Boynton was using the Spectator ‘s money to pay private investigators and others for derogatory information about the Clintons and their associates. They also noted that Mr. Boynton is a longtime associate of two figures close to Mr. Scaife: David Henderson, a member of the Spectator ‘s board who also worked on the Arkansas Project, and Richard Larry, president of the Sarah Scaife Foundation and treasurer of the Carthage Foundation, who oversees Mr. Scaife’s highly ideological philanthropic activities. It was Mr. Larry’s displeasure over the questions being asked by Mr. Burr about the Arkansas Project that led to the publisher’s firing, the Spectator sources said.

Friends of Mr. Burr said his worries arose because of the increasing amounts being paid to Mr. Boynton each year without any apparent purpose or explanation. Mr. Burr was concerned, according to his friends, that the payments to Mr. Boynton might somehow violate the Spectator ‘s tax-exempt status. Mr. Burr himself has declined comment on the reasons for his departure from the Spectator , where he had worked since its founding in 1967.

The I.R.S. returns of the Sarah Scaife and Carthage foundations, both controlled by Mr. Scaife, and of the Spectator foundation, are all publicly available documents. Sources at the Spectator provided copies of the internal reports to its board of directors, which are headed “Functional Analysis of Expense” and “Statements of Financial Position” for fiscal years from 1990 to 1996.

In 1993, the Sarah Scaife and Carthage foundations made payments to the Spectator for “general operating support” of $430,000. Some time in mid-1993, Mr. Boynton has told The Observer , he began working for the magazine on the Arkansas Project. On the Spectator ‘s tax return for 1993, Mr. Boynton is showed as having received $237,500 for “legal” services. Yet for the fiscal year 1994-which began in July 1993 and ended in June 1994-the Spectator ‘s internal documents show total costs for “professional fees” of $98,524, which would include not only lawyers but accounting and other costs. Of that amount, only $31,168 is attributed to the Spectator foundation’s “publishing program,” i.e., the magazine itself.

The following year, contributions from the Sarah Scaife and Carthage foundations jumped to $605,000 (including $250,000 earmarked for “special projects”). Mr. Boynton’s reported compensation for 1994 also increased markedly, to $537,500. And while the internal Spectator documents also show an increase in professional fees, the total of $168,623 is still far below the amount paid to the Virginia lawyer for running the Arkansas Project.

A similar pattern continued in 1995 and 1996, the documents show. In 1995, the Scaife foundations gave $700,000 to the Spectator (of which $500,000 was for “special projects”). That year, Mr. Boynton received $475,267. Professional fees on the Spectator foundation’s own internal financial report for fiscal 1996 were listed as $155,282, with only $22,277 attributed to the publishing program. In 1996, the Spectator received $695,000 from the Scaife foundations. Mr. Boynton was reported to have been paid $515,384.

Theodore Olson, a prominent Washington attorney who sits on the Spectator ‘s board of directors and serves as the magazine’s lawyer, has told The Observer that in the wake of Mr. Burr’s ouster, the magazine’s board has been looking into the Arkansas Project. (Mr. Olson is a close friend of Kenneth Starr, the Whitewater independent counsel, and has also served as an attorney for Mr. Hale, the convicted swindler who has testified against the President for Mr. Starr.) He declined further comment on the Arkansas Project or the money paid to Mr. Boynton pending the outcome of that investigation.

No doubt Mr. Olson and his colleagues on the Spectator board will inquire into the discrepancies between the magazine’s tax returns and the financial reports provided to them over the past several years. But don’t expect to read about their findings in The American Spectator .